Executive Share Scheme (ESS) Missed Opportunities

Executives and senior managers are highly paid. Your remuneration often includes an Executive Share Scheme (ESS) and this is almost always accompanied by considerable tax obligations.

However, as astute as you are, you’re also time poor and this means self-managing your personal financial matters and their inherent complexity has limitations that can present an additional time burden and the dual disadvantage of missing out on opportunities for making more of your earnings.

For executives and senior managers self-managing their executive share scheme one of a number of key considerations is having enough cash on hand to pay their inevitable tax bill due at vesting.

Understandably, this is important as tax can be substantial.

However, the solution many executives create for themselves often involves selling a portion of the shares, sometimes as many as 50% to cover their tax obligation and to avoid a personal cashflow crisis.

While I agree it’s imperative you pay your taxes, this should not be the sole consideration. There are alternative approaches for meeting tax payments AND creating better and more valuable personal wealth outcomes.

As a financial planner with an ESS advice specialisation, I tend to look through a different and more strategic lens to consider both immediate solutions (your tax bill) and the broader longer-term benefits to your future wealth.

For example, changing the ownership position of your shares (whether they are shares that vested in the past or those which may have vested recently) can provide tax effectiveness without the need to sell parcels of shares to cash and in doing so lose exposure to the company you work for.

That is, rather than solely owning the shares, there may be opportunity to own them tax effectively through superannuation, in a trust or by your spouse.

Of course, it’s never that straight-forward.

Administration matters that include minimum holding requirements which may be a condition of your employment, will need to be reviewed to determine whether a different ownership strategy such as suggested above is within the company’s minimum holding requirement policy.

However, if part of your overall wealth accumulation strategy is to release some value from your share scheme, planning incremental share sales over time, will likely provide a better outcome, and sooner, than selling your shares as a single, high share price sale.

As you are no doubt aware, self-managing your executive share scheme is time consuming and there are many considerations in addition to tax compliance that need to be observed.

When advising executives and senior managers, I carefully consider the impacts of having a large dollar value or significant proportion of personal wealth tied up in an employer’s share scheme.

While I understand company share prices are often discussed at management meetings, and you may be privy to details that potentially promise higher future share values, the company position will likely be different from your individual wealth creation plan.

When all your financial eggs are in your employer’s basket you will be more exposed to risk than if, for example, you were to strategically sell down some shares. This approach may include reducing your tax-inefficient debts, making contributions to superannuation or considering a more diversified investment portfolio.

An advised-approach to your executive share scheme rather than self-managing, also provides external professional knowledge and insight, as well as a discipline that has the legal requirement of being in your best interests first and foremost.

Next steps
If you suspect you are missing out on wealth opportunities aligned with your executive share scheme, may I invite you to give me a call.  May I also assure you there is no obligation, just the opportunity for you to participate in discussion that will likely provide valuable insight as to whether an advised or self-managed approach is right for you.

To learn more about ESS financial management, please contact James Marshall on +61 (0) 7 3007 2080 or email contact@executivestrategies.com.au

To learn more about James, visit this link.

Executive Strategies is a specialised information hub for executives and senior managers who may have founded their own business or who work for growing private, ASX listed companies or government businesses. Its purpose is to provide access to specialist advisers and information that addresses the often-complex issues affecting their personal prosperity.

Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.

*Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.